I don't think it is about breaking her spirit. Remember that the art pieces are numbered, the judges do not know who the painter is. This ensures that the judging is fair. She outed herself when she questioned the decision to fail her.
Regarding the Prince, firstly, if he paid $ for real art but received a forgery, it is natural that he would want to pursue. But separately, it could be that in those times, copying art is not acceptable? Not like now, where we can buy prints anytime.
I like Cheon Gi's piece too. It looks quite modern, with the branches vertical towards the moon. So unlike the usual.